Second Quarter 2020 Earnings Financial Analysis

Analyst: David Aughinbaugh II

NavFile Center

The Walt Disney Company

2020 Q2 Earnings Report AnalysisThe Walt Disney Company

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Presentation includes:

Earnings Report Overview

Performance Review

Key Segment Financial Review

Cash Flow Review

What To Watch

Summary

Note: David & NavFile are not affiliated with The Walt Disney Company and this is not a report generated by the company.

2020 Q2 Earnings Report OverviewThe Walt Disney Company

Reported Earnings Per Share of $0.26. Net Income: $475 million.

Comparable Results: $0.60 Earnings Per Share (EPS).

Beat estimates of $0.89 EPS. 32.6% below expectations. (Data from CNBC).

Revenues: $18.009 billion. Virtually inline with expectations.

Analyst Expectations: $17.80 billion. (From CNBC).

Photo by Davric –Wikimedia Commons

0

0.5

1

EPS

Earnings Per Share Comparison (Comparable)

Expected Actual

17.617.717.817.9

1818.1

Revenues

Revenue Comparison

Expected Actual

2020 Q2 Earnings Report OverviewThe Walt Disney Company

Disney was greatly impacted by the economic shutdown that occurred at the end of the quarter.

Parks, Experiences, and Products was severely impacted. The shutdown reduced operating income by $1 billion.

Studio Entertainment was also greatly impacted as the company had to delay or alter distribution of its films.

Media Networks had a good/OK quarter with revenue and operating income gains; however, the segment recorded lower viewership and lost live sports.

Direct-to-Consumer & International had a good quarter based on revenue and subscriber gains.

On May 4th the Disney+ subscriber base had grown to 54.5 million.

Company lost $1.4 billion in operating income as result of the economic shutdown.

The company’s future is now dependent on when it will be able to fully restart operations.

Overall Performance Review

Results were below estimates as the company was impacted by the shutdown.

Parks, Experiences, and Products revenues were down 10% and operating income was down 58 %.

Studio Entertainment revenues were up 18% and operating income was down 8 %.

Media Networks had an OK to good quarter with revenues that were up 28 % and operating income up 7 %.

Direct-to-Consumer and International had a good quarter with a 273% increase in revenues and 54.5 million Disney+ subscribers. Operating losses increased by 111%.

The economic shutdown cost the company $1.4 billion. Based on a rough estimate, the firm may have lost $87.5 million per

day (based on when the U.S. parks started closing down in March).

Photo: David Aughinbaugh II

Overall Performance Review

Segment operating income was down 37%

All segments, except, Direct-to-Consumer and International were impacted by the shutdown.

Net income was down 91%.

Comparable EPS down 63%, and regular EPS down 93%.

Key Segment Financial ReviewParks, Experiences, and Products

Revenues down 10% & income down 58% to $5.543 billion & $639 million.

The segment was severely impacted by the economic shutdown.

As a result of the shutdown, the segment lost $1 billion in income.

Before the closure of the parks and resorts, the firm’s guest spending and traffic was on track to be higher than last year.

Disney did not provide more detailed info on the performance of its parks and resorts.

The company’s product division had lower results due to lower income from games and merchandise licensing.

The comparison of a sale of rights to a video game, lower royalties from Kingdom Hearts III, lower minimum guarantee shortfall recognition, lower revenue from Mickey and Minnie and Avengers merchandise were behind the declines at Products.

Key Segment Financial ReviewStudio Entertainment

The segment was affected by the economic shutdown. Revenues were up 18% to $2.5 billion and operating income

decreased 8 % to $466 billion. Film impairments, lower theatrical distribution and stage play

results were behind the declines. Increase in bad debt expense. The release of the film Onward

was impacted. There was growth in TV/SVOD as sales to Disney+ were

positive for the quarter. 21st Century Fox’s movies and businesses recorded a loss

again; however TV/SVOD distribution was profitable.

Photo: Coolcaesar –Wikimedia Commons

Key Segment Financial ReviewMedia Networks

Had an okay to good quarter despite being affected by the shutdown.

Revenues were up 28% to $7.3 billion and operating income was up 7% to $2.4 billion.

Cable Networks revenues up 17% & income up 1% to $4.4 billion & 1.8 billion.

Operating income increased due to the combination of 21st Century Fox in the results.

ESPN was impacted by higher production and programming costs and lower advertising revenue again.

Increase in rates for College Football Playoffs and other college sports.

Lower viewership = decline in advertising revenue, once again.

Increased affiliate revenue due rise in rates.

Disney Channel domestic and Freeform had lower results. Disney Channel: lower affiliate revenue & higher marketing costs. Freeform: higher programming cost, lower ad revenue, & higher marketing costs.

Broadcasting revenues up 49% and operating income up 53%. $2.8 billion & $397 million respectively.

Consolidation of 21st Century Fox caused income to rise. Legacy operations were up also. Higher affiliate revenue and lower programming and production costs.

Equity in the Income of the Investees (A+E operations) was down 2% to $179 million (only accounting for Media Networks portion).

Photo: Junkyardsparkle –Wikimedia CommonsEnhanced by NavFile

Key Segment Financial ReviewDirect-To-Consumer & International

Revenues increased 273% and operating losses increased by 111% ($4.1 billion & $812 million).

Increase in operating losses was due costs of the continued launch of Disney+.

33.5 million Disney+ subscribers at quarter end.

54.5 million subscribers on 5/4/2020.

Cash Flow ReviewFor Q1 2020

Cash flows declined by 19.4% from last year.

Cash flows (continuing ops): $3.157 billion.

Free Cash Flow: $1.910 billion.

Free Cash Flow decreased by 30% or $810 million.

Investments in parks, resorts, and other property increased by $52 million to $1.247 billion (4.4% increase.

Photo by Davric –Wikimedia Commons

Future Analysis What to Watch

When will Disney get back to normal operations? Company is most likely using millions of dollars per

day just to stay afloat. If most of the company’s ops remain closed, the

financial effects will strain the firm’s resources. The main focus is get operations back to where

they were before the shutdown. Company could be in a very challenging situation if

the shutdown lasts for a many more months.Photo: The Walt Disney Company

Summary: 1st Quarter 2020

Disney was greatly harmed by the economic shutdown. Parks, Experiences and Products will be the division to watch as it is

the most vulnerable and lost $1 billion from the shutdown. Studio Entertainment is second segment to watch as it has also

been greatly affected by the shutdown. Media Networks did well in the quarter; however, can that continue

in light of the shutdown? Direct-to-Consumer and International continued to gain ground;

however, the continued losses will not help the firm in the near term. Also, can the division handle an economic downturn?

The Walt Disney Company will continue to perform poorly until they are able to return to normal operations.

Data Sources

The Walt Disney Company 2020 Q2 Earnings Report: https://thewaltdisneycompany.com/app/uploads/2020/05/q2-fy20-earnings.pdf

CNBC – Analyst Expectations: https://www.cnbc.com/2020/05/05/disney-dis-q2-2020-earnings.html

The Walt Disney Company 2020 Q2 Earnings Conference Call: https://thewaltdisneycompany.com/app/uploads/2020/04/q2-fy20-earnings-transcript.pdf

All the sources were accessed during 5/2020.

Thank YouThe Walt Disney Company 2020 Q2 Financial Analysis

David Aughinbaugh IINavFile Center

Read David’s financial analysis article here:https://www.navfile.com/center/the-walt-disney-company-financial-analysis-q2-2020